Investment in tourism and hospitality in Panama is at an all-time high. What does that mean for investors?

Panama’s current and future infrastructure projects read like a wish list for any global travel hub: airport expansion, new roadways, a new rail system, thousands of new hotel rooms, large-scale event venues and fast-growing mega-malls. But Panama’s growing importance on the business and tourism grid brings its own set of challenges.

The number of foreign visitors to Panama grew between 7 and 8 percent between 2011 and 2012, according to Ernesto Orillac, sub-director for the gobernment tourism agency, known as the Autoridad de Turismo de Panamá, or ATP. “Panama will end 2012 with 2.2 million visitors,” he said, a staggering number considering Panama’s actual population is just 3.5 million.

But Orillac is even more optimistic when it comes to growth trends at Tocumen International Airport, the nation’s primary international gateway. The rate of travelers using the facility surged 17 percent between September 2011 and September 2012, and more passengers now pass through this hub every year than the entire population of Panama (5.8 million in 2011). As more people get out of the airport and into Panama, according to Orillac, the nation’s business and leisure tourism segments will expand further.

Building the appropriate infrastructure for a surge in visitors is a constant challenge. Tocumen, which serves as a hub for Copa Airlines, recently debuted a new northern concourse, and a $670-million contract has been awarded to build a southern concourse with at least 20 new gates within the next three years.

Within the city limits, the government aims to alleviate intense traffic congestion with projects that include the construction of Central America’s first urban rail system – the Metro is slated to open its first line in 2014 – and the extension of the Cinta Costera waterfront boulevard, which will wrap around the historic Casco Antiguo district–a move that some critics fear will jeopardize the neighborhood’s status as a UNESCO World Heritage Site.

Investment in infrastructure is “extremely important” to keep Panama competitive, according to Al Petrone, CEO of Bristol Hospitality Group. The group owns the Bristol Panama, a luxury hotel that opened a new 111-room tower in 2012, and the Bristol Buenaventura, a beachfront resort that was due to become a JW Marriott property by press time. “Panama is competing with other countries in the area for corporate investment in local regional offices, large trade shows, and global conferences,” he explained. “Panama must be an easy place in which to do business, with minimal disruption and limited bureaucracy. If Panama does not offer world-class level investment in infrastructure, we will see meeting planners, corporate travel managers, and large groups going elsewhere to avoid the hassle, lost time, and frustration in dealing with the basic needs of the 21st century traveler.”

New meeting and event space, including a new convention center and the first Frank Gehry-designed museum in Latin America, both slated to open near the mouth of the Panama Canal, are also expected to lure more visitors to Panama, according to Orillac. “All of these elements foster corporate tourism [and] business tourism,” he said.

View of the Museum of Diversity under construction at the inlet of the Panama Canal, in Panama City. The museum, located in an old US military base, was designed by Canadian architect Frank Gehry and will be opened in the first half of 2013. Photo: Juan Jose Rodriguez/AFP/Getty Images/Newscom

More Room at the Inns

There was a time when Panama City was dotted with mediocre hotels that charged inflated rates. That was when demand exceeded inventory. But times have changed, and the debut of a slew of internationally branded luxury hotels as well as mid-level chains is likely to put pressure on existing properties to either spruce up or drop prices. The new offerings inlcude the TRYP by Wyndham Panama Centro, which offers amenities like a rooftop pool, free gym access, free Wi-Fi and free breakfast.

“In the last four years, there has been an increase of between 4,000 and 5,000 hotel rooms, with a total offering of 14,000 rooms,” said Ori-llac. “It’s expected that by 2014, Panama City will have 18,000 rooms in hotels in the ‘gran turismo’ category.”

In addition to the 92-room TRYP, recent hotel openings include the 1,500-room Hard Rock Hotel Panama Megapolis, the 111-room Le Meridien Panama, the 137-room Holiday Inn Panama Canal and the 369-room Trump Ocean Club International Hotel & Tower, set in a 70-story tower that also houses residences. In addition, several small luxury hotels have opened their doors in the historic Casco Antiguo district. In the case of many large hotels, developers rely on condos and casinos to complement revenue produced by the hotel itself. Newland International Properties, the developer of the Trump Ocean Club, announced in November that Sun International would spend $45.5 million to buy the hotel’s casino, slated to open in 2014.

Still in the works are hotels that will fly the flags of Hilton, Sonesta, W and Waldorf Astoria, as well as a Westin that will complement the recently opened 611-room Westin Playa Bonita, a convention-oriented beachfront property just outside the city.

Hoteliers are already adjusting their forecasts to take into account the increased competition. When it comes to room rates, “We’re approaching next year very conservatively,” said John A. Cardona, director of sales and marketing at the Trump Ocean Club International Hotel & Tower, which opened in 2011.

Diversification will help keep hotel rooms full, according to Al Petrone, from Bristol Group. “Travel, tourism, construction, trade, infrastructure investment, banking, and the Panama Canal all play a key role in making sure Panama’s economy is not solely dependent on one sector.”

“There’s no doubt that the hotel industry in Panama City is experiencing a challenging time, as thousands of rooms have opened in the marketplace in the last three years,” said Daniel del Olmo, Wyndham Hotel Group’s senior vice president and managing director for Latin America. “In the late 1990s, Panama City had a very limited supply of hotel stock—less than 2,000 hotel rooms. Today, the city boasts more than 10,000 rooms, with more underway. Overall, we anticipate occupancy levels will not come back to pre-2012 levels until 2016 because of this rapid boom.”

Diversification will help keep hotel rooms full, according to Petrone. “Travel, tourism, construction, trade, infrastructure investment, banking, and the Panama Canal all play a key role in making sure Panama’s economy is not solely dependent on one sector,” he said.

Panama’s economic success, which has resulted in a low unemployment rate, presents another challenge for the hotel industry, according to del Olmo. Panama “needs a stronger emphasis on education and service culture,” he said. “Panama’s unemployment rate is low right now — approximately 4 percent — so, as a result, there are challenges across the entire industry in attracting skilled workers that will not only be loyal to an employer, but will also exude the highest levels of service culture that is expected of the hospitality and tourism sectors.”

For travelers, the biggest challenge may be just deciding among all the new hotel options.